Debating the Recommendations from the Group of 30

[Chris Coles]

Hat tip to babbittd for the link to http://www.group30.org/pubs/recommendations.pdf from this news item

http://www.itulip.com/forums/showthr...3594#post73594

Their recommendations make very interesting reading and clearly imply that the FIRE economy is fighting to maintain its dominance regardless of the long term implications to the overall success of the worlds economy.

These are my immediate comments.

Recommendation

1b. No mention of the use of leverage when describing:-

"Participation in packaging and sale of collective debt instruments should require the retention of a meaningful part of the credit risk".

2b. Are we to assume that this implies large investment banks and broker-dealers are uninsured risks to the system?

3. OK

4a. Surely the moment you introduce exemptions, you also open the door to potential abuse?

5. Needs new "c" - All transactions should be conducted to the strict rules of a free market preventing distortions to any trade downstream of the moment of sale?

6b. See 5"c" above.

7a. I note the use of the phrase "increased use of leverage that may lead to crises." See note 1b above.

8a ii. Surely there is no expectation that a rogue state would pay any attention to such application and enforcement?

8b.

"b. Given the recurring importance of excessive leverage as a contributing factor to financial disruptions, and the increasingly complex ways in which leverage can be employed on and off balance sheets, prudential regulators and central banks should collaborate with international agencies in an effort to define leverage and then collect and report data on the degree of leverage and maturity and liquidity mismatches in various national systems and markets."

At first sight this looks like they are closing the stable door long after the horse has bolted but no; and no mention of any form of control either. So we have to assume they want to go on "leveraging" for all it is worth.

8c. And then to add insult to injury; they draw your attention away from leveraging and direct it towards trying to focus on the European Union.

9e. Again, the expectation of further "excess leverage"

9f. First of all they promote the idea of a Prudential Regulator sited right inside such institutions. But, when you read 9f you realise that the Prudential Regulator will not be in possession of information as of right, but instead will have their host institution only required "to make that information available, as appropriate" - The use of that particular phrase opens the door to a whole host of misinterpretations and thus misuse.

10d. Again, the use of the phrase "higher degree" poses the obvious question - how much higher?

11. OK

12. Sub thought: Banking, being mercantile, assumes very little access to external equity capital, (not fixed assets), in the hands of the borrower to reduce risk. Surely higher equity capital ratios embedded into borrowers will go a long way towards alleviating risk?

Core Recommendation IV

Financial markets and products must be made more transparent, with betteraligned risk and prudential incentives. The infrastructure supporting such markets must be made much more robust and resistant to potential failures of even large financial institutions.

Surely much of this can be implemented by the introduction of true free market rules preventing distortion downstream of the creation of any contract?

13 a. Not a sign of any intention to reduce reliance upon: "innovation in the capital markets and the rapid growth of securitization".

13 b. Again, "The healthy redevelopment of securitized credit markets"

13 c. Again, the "Bad Bank" (Off-Balance-Sheet Vehicles to "restore the viability of securitized credit markets".

14. Signals the recognition of a complete failure on the part of rating agencies and is a complete cop out from the whole idea of independently funding ratings agencies. "encourage the development" is a granny without any teeth!

15. More as per 13a above.

Sub note: What has happened but has yet to be fully recognised is that these institutions are now rejecting the controls inherent in using a national currency, (the actual printed dollar bill for example), and are now, instead, intent upon replacing such currency with their own paper.

16. A Resolution Mechanism for Financial Institutions But we already have a satisfactory system; it is called The Official Receiver of Bankruptcy and the banks are very familiar with it. So this is an attempt to create their own system outside of receivership in bankruptcy and thus we must also assume, is intended to be less onerous.

17 b. "synthetic structured products" See Sub Note 15 above.

18. No "teeth" anywhere in sight.

What we have here is exactly what we should expect from a combined group that have, between them, brought the developed world to its knees and yet, still, refuses to recognise why.

Of one thing I am now quite certain, we must, as soon as reasonably prudent, establish our own, credible, debating group; to set out what needs to be done to completely change direction. Simply standing back and bowing to these individuals because they have always been there, is not the way to proceed. They are incredible and have damaged themselves beyond doubt. They must be replaced and the sooner the better.

Chris Coles